The true cost of the health-care bill, cont'd: An interview with Rep. Paul Ryan

Rep. Paul Ryan is the ranking member of the House Budget Committee. Accordingly, Republicans charged him with making the case against the administration's health-care bill at the Blair House summit. Those remarks can be read here. A few days later, I posted a critique of Ryan's argument. A few days after that, he responded (pdf). Rather than continuing to fire missives at each other, we spoke this morning about the bill's impact on the deficit. What follows is a transcript of the call, with extremely light edits for clarity. And before we start, let me thank Rep. Ryan for being willing to engage on this issue at length.

Ezra Klein: Let’s begin at the beginning. In your comments at the summit, you said that "the bill has 10 years of tax increases, about half a trillion dollars, with 10 years of Medicare cuts, about half a trillion dollars, to pay for six years of spending. Now, what's the true 10-year cost of this bill in 10 years? That's $2.3 trillion." I read that as suggesting the bill was hiding its fiscal irresponsibility in the second decade, when in fact, the revenues and savings grow faster in that decade than in the first.

Paul Ryan: The problem with the Blair Summit is they give you five minutes to get your points out. So I had to cram what is really 15 minutes of a presentation into five minutes. There's a broader point I was trying to make here, which is that size of government matters. It would matter if we had $50 trillion in spending increases even if we had $51 trillion in tax increases. The big number matters because it tells you how much we're taking out of the economy.

EK: So let me focus on that number. People don’t know how to put $2.3 trillion over 10 years in context. A better way to do this would be to look at one year, and to look at percentiles. In 2019, the bill spends about $200 billion. But some of that money is money that government is already spending and is simply redirecting to this purpose. The new money it spends is $133 billion.

To put that in perspective, in 2019, the federal budget is projected to be $5.4 trillion. So we’re talking about an increase in federal spending of 2.4 percent. And that 2.4 percent increase will cover 31 million people. Now, I think you can say that’s worth it or not worth it, but put in context, it reads very, very differently than just letting $2.3 trillion hang out there.

PR: Look, we already spend more than twice as much per person on health care as any other industrialized country. But we're not getting our money's worth. Right now, we're projected, without this legislation, to spend another $4.5 trillion just from the government on health care for people under the age of 65. Is throwing another $2.3 trillion on top of that the answer? And I'd respectfully say it's not the answer.

The answer is to spend our money more efficiently and intelligently. But this is not doing that. At the end of the day we're building on top of a system that needs to be reformed itself. If more government control over our health-care resources were the answer, we wouldn't have all these problems in Medicare and Medicaid themselves.

EK: There are two things worth saying about that. First, to cover the uninsured, if we believe we need to do that, there'll always be at least a one-time increase in expenses. And two, it's hard to say that government spending is the problem when the countries you're saying spend half as much all do much more of their spending through the government. But let's get into the double-counting issue. If I understand your argument right, you're not saying the Congressional Budget Office is double-counting this money. You're saying the administration and other Democrats have made arguments in which they double-count the money. I agree with you on that. But just so we're clear, CBO's number are still solid.

PR: CBO just scores what's in front of them. So let's just go through it point-by-point. When you raise Social Security's tax revenues, you also raise benefits. More coming in taxes says more benefits are being obligated CBO says you can only count that money once. If you're counting it as offsets for this bill, you're increasing unfunded obligations for Social Security. CLASS Act is another example: These are premiums for a benefit. You're counting these premiums for this benefit as offsets for another spending project, you're creating unfunded benefits. That's double counting. We're increasing obligations and we're not setting aside those dollars for those programs.

So when I hear Sebelius and others say that we're extending the life of Medicare with this, that can't be claimed if you're also using these premiums for offsets. That's disguising the true fiscal picture that's being painted here. The American people are hearing that if we pass this legislation it will improve our deficit situation. I'm saying that's not true because we're increasing these obligations and spending that money elsewhere.

The topper of this issue, which goes to the difference in our opinions, is that if you basically believe that we need the government to assert itself in this sector, then you have to global budget and, ultimately, ration. And that's just not the path we want to get on. We believe in a decentralized system where individuals bring market forces to bear.

EK: This is where I think we end up in different places. The philosophical differences are all fair enough. But insofar as the double counting goes, the double counting is an issue of how some Democrats are talking about this. And I agree with you. Saying that the money will do two things at once is out of line. But what I want to make sure is clarified here is that the numbers people are using from CBO are not afflicted by that rhetorical overreach. When CBO says the bill will save this much money, it really will, at least according to the best estimates.

PR: I'm not disagreeing with that. But I think CBO is omitting other fiscal effects that are not in the bill -- unless we plan on cutting doctors 21 percent next month. Unless we plan on doing that, then we're not truly capturing the fiscal effects.

EK: But now we're not talking about double counting. We're talking about the doctor's fix in Medicare.

PR: Right. And I think you and I simply don't agree on this.

EK: That's probably true. But let's just have some basic background here so we start on the same page. We're both talking about the sustainable-growth-rate formula. That was a doctor payment formula proposed by Bill Thomas, the Republican chair of Ways and Means, in the Balanced Budget Act of 1997.

PR: Republican Congress, bipartisan deal, signed by Bill Clinton.

EK: Absolutely. The formula proved very flawed, nobody expected it to do what it's done.

PR: Correct.

EK: And since then, the Congress has stopped it from cutting doctor payments seven times since then. I went back through the record, and you voted for five of those delays.

PR: Oh, yeah! I think we should fix the thing. Don't get me wrong.

EK: And I agree. But if it exists completely independently of health-care reform -- and if it was developed in 1997, that has to be true -- how can it be properly understood as part of the cost of health-care reform?

PR: Here's my challenge to that. These bills had the doc fix to begin with. And if you're going to say that Medicare savings can be counted as health-care reform, then the Medicare spending issues should go in there as well. You can't say I'm going to take out $467 billion in savings from Medicare and apply it to this entitlement and then I'm going to exclude the doc fix. If you're going to count the Medicare spending as an offset in this bill, you have to count the Medicare spending as well. It's in the same program. And that to me is what's cynical about this gimmick.

EK: But I want to make sure we're clear on one thing: You and I don't disagree that if we don't do health-care reform, if not a person gets covered and this bill is soundly defeated, we still have to handle SGR.

PR: Yes, I agree with that. But you would have your point if they weren't taking money from Medicare to pay for this program. If Medicare's a pay for, you can't just count the savings and not the spending.

EK: What confused me about your point on that is that yes, Democrats are proposing new savings in Medicare to fund their bill. But Medicare also has lots of existing debts and obligations. You wouldn't say that Medicare's expected deficit 20 years from now is part of the bill. I agree that the SGR fix was in the House bill originally, because they figured that as long as they were doing a big health-care package, we should get this done, too. But people often attach a lot of priorities to one big legislative initiative. That doesn't mean they're the same thing. Then your party began hammering them, and you can argue it was cynical that they took it out, but they took it out because Republicans were cynically hammering them having it in there.

PR: You and I both know why they took it out. It made the numbers look bad.

EK: Absolutely. But they had to do the fix because Republicans passed this bill in 1997.

PR: But Bill Clinton signed the damn thing into law, and the American Medical Association asked us to do this.

EK: We agree. Everyone's hands are dirty on this.

PR: I'm going to go back to my original point though. Doc fix was in. Medicare is part of this debate because Medicare is a funding mechanism for this new entitlement. And if that's true, then all the Medicare iterations Congress is dealing with are part of this. You can't say: "I'm going to get money from Medicare for this new entitlement but I'm going to exclude the doc fix." You can't have it both ways.

EK: I think this is important because it's where you get most of the money in your argument from, so let me try and do this one more way and then I'll let you have the last word on this. It’s like I have a house with a leaking roof. I need to fix that roof, and it might make sense for me to do that when I buy a second house. But the argument you're making is that it is properly understood as part of the cost of the second house, because I'm using the first house for collateral or something. I think you make a solid point saying that if they had it in there in the beginning, they shouldn't have reversed course. But what happened there is that the were trying to fix a big problem that both parties created, and Republicans basically said, sorry, we're not helping you on this because we don't want your health-care reform bill to pass, and by the way, we're going to attack this as part of the cost of the health bill. And Democrats said, fine, if you're not going to help clean this up, then we can leave it be and both of us can do it later. It didn't make any sense to let Republicans use a problem they'd passed into law to drag the health-care bill down.

PR: I'd probably just make my same point again, so I won't rehash it. I see your point and you see mine, so I think we just fundamentally disagree. But what we ought to do is really fix Medicare and do the SGR thing in that context. That's my problem at the end of the day. We got these entitlements going bankrupt already. We don't need another one on top of it.

Look, I believe we need to do health-care reform. And the employer-tax exclusion is the place to go. That is a huge driver of health inflation, no one has the guts to take it on, and what's a crime in my mind is that I think people in the administration would agree with this. I think economists would agree with it. That's where we should go to fund health-care reform. But we're not. Because of politics. And unfortunately, we're creating a fiscal house of cards instead. We're not dealing with the entitlements that are unfunded right now. We're creating a new one.

EK: But on the exclusion, Max Baucus wanted to fund reform through the exclusion. And the administration, which had attacked John McCain on his attempt to repeal the exclusion, were ready to go with him. They didn't get any Republican support on that, though. If Bob Bennett and four Republicans had come to them and said, look, if you go hard at the exclusion, you have my vote, they could've gone hard at the exclusion.

PR: There's a distinction though. The Patient's Choice Act that I have doesn't repeal the exclusion and put the money in a new government spending program. It takes the money and gives it to the individual. There's a very big difference of opinion here. You don't end the exclusion and have the government spend it on a program. You give it to every individual. But the point I'm trying to make is we spend enough on health care. We don't need to do more. We need to do what we do more efficiently and effectively.

EK: Last question. On the question of whether we can trust Congress to implement modest cuts. If you don't think government can abide by even the modest spending cuts in this bill, then where are we left? We're going to need to do much more than this bill. Your bill does much more than this bill. But if Congress can't do what it says it's going to do, what's the point in talking about any of this at all? If none of the policies can be implemented, then we're going bankrupt.

So why is Paul Ryan all up in the House of Representatives sponging a living off the taxpayer if all is lost, guvmint is teh suxx0r and we're doomed to go bankrupt because the sinister forces inherent in government will prevent us from dealing with our financial problems... in a way that sufficiently pleases Paul Ryan and his party that they will not exercise veto power over any proposed solutions?

I'm so sick of these nihilists and mercenary pols-for-hire. Ah, Paul Ryan, the thoughtful pirate with the furrowed brow. My mom died too young in Paul Ryan's district because she was between jobs and didn't have insurance when the pain started and didn't go see the doctor until she got a job, by which point her cancer was incurable. She did a hell of a lot of good for her fellow citizens. What has Paul Ryan done besides stand in the hospital door and tell the out of work and out of luck, in so many splendid words, to take a hike?

Its a pity you didn't have time to explore what privitizing and voucherizing medicare would do to the benefits, which is to cut them in real terms (health care costs go up faster than the value of the vouchers). I would like to see how many repiglicans are willing to embrace that inconvenient truth.

matthewarnold, it's not fair to expect a person to do a full time job in government for no pay, even if they think the size of government is the biggest problem we face.

It's also not helpful because it can be turned around just as easily. "If you think the government should be spending more money on education, Mr. Liberal Senator, why are you taking salary that could be put towards education programs?!"

Now, our legislators are *very* well paid. On the other hand, their pay is insignificant compared to the size of the budget and the last thing we want is for legislators to have *more* incentive to try and get money on the side from powerful, rich interests.

Ezra, now that I've read the whole thing, great interview! I still think the bolding/non-bolding is a little confusing and that name tags on statements would be very helpful.

Great journalism is all about follow-ups. The more of these we see, on every issue, with every major player, the better.

That said, while I think it's obvious that Ryan's point on SGR is strictly a political one, we see the very real philosophical difference: that he won't support any plan that involves government expenditures, rather than direct payments to individuals. I don't think that bipartisanship is possible with that kind of attitude, but at least it's a good faith belief.

I think Congressman Ryan's response regarding the potential for a bipartisan solution in the Senate regarding a deal on the tax exclusion for support for health care really makes clear how hard headed most Republicans are. I understand he doesn't think government is the solution, but a majority in Congress thinks that gov't has a role in solving this problem and if he wants to help solve the problem he needs to be willing to deal. He's basically saying: yes there was a possible deal there but we don't want to make a deal, we want the whole darn pie, even though we're the minority and we've been flogged by the public in the last two elections. That isn't a legislator talking, it's a petulant child demanding it his way or no way.

Um, MosBen, I was merely pointing out that Ryan's employment situation is inconsistent with his philosophy of government, and that if he thinks government can do no right, he should get the hell out of the way and off Uncle Sam's payroll.

If Democrats clearly stated that their healthcare bill----this bill they're about to ram down our throats---this bill will do absolutely nothing to improve the solvency of Medicare, and will actually trim some benefits currently promised to Medicare (namely Medicare Advantage) then Ezra's leaking roof argument would hold water.

The fact is that Obama & Pelosi will never do that, and they've used the CBO Score as a cynical prop for arguing their bill as a Utopian panacea, the reform to end all reforms.

Like you, Ezra, I appreciate the Rep. Ryan is thinking about the subject of health care reform seriously. He's a rare bird in the Republican aviary. Eventually, we should look at his vouchers remedy and see if it could actually work, perhaps by being incorporated into the Democratic plan.

Great interview. I'd really love to see more discussion of Ryan's Patient's Choice Act. After a cursory read, I just can't see how it accomplishes what it claims.

Auto-enrollment is nice, but without a mandate, why would I pay hundreds of dollars a month for health insurance when the exchanges are obligated to offer plans to me, regardless of pre-existing condition?

What's wrong with getting this guy to agree that we need to have universal health coverage now and then work out all the problems later? All he wants to do is delay this bill so he has more time to kill it. No further compromise will result in any Republican votes so screw'em. Once universal health coverage is the norm THEN these guys can play around with particulars when they are in the majority.

Thanks for doing this interview Ezra, and thanks to Rep. Ryan for participating.

I appreciate his candor about how the political posturing on BOTH sides are getting in the way of an honest discussion of potential solutions.

I agree that we ought to be able to afford to cover everyone if we were getting our money's worth. The fact is that we spend twice as much per person as other countries that do cover everyone, but we still have huge gaps in coverage and quality.

That money is going somewhere. Which makes me suspect we have waste and fraud to a degree that no one has yet imagined.

The point is that they don't NEED to do a permanent fix. That was a choice. They could do what has been done in the past-- punt the issue another year with a one-year fix. Maybe next year they'd actually take up physician compensation reform. But they didn't do the one year fix. For one reason. They wanted the AMA's support for the bill. The AMA's price was a permanent fix. You had to grease the skids. That was a CHOICE.

Here's the analogy you need, Ezra. You're taking your woman on a date for your anniversary. She's told you that she wants to go to Restaurant X. Restaurant X is completed booked on your anniversary night, but they manage to "find" a table when you offer the old $20 handshake. The dinner bill with tip was $100. What was the cost of the meal? The answer is $120, not $100.

PS On a policy note. Its incorrect to say that the Republicans always just "fixed" SGR. If you go back to 2005 and 2006, Republicans, under McClellan I believe, started to push for compensation reform changes. In one or two years, they were actually successful is getting part of the "fix" converted to P4P bonuses rather than a simple fix. This is the RIGHT policy. That changed in 2007, when Democrats came to power. THEY decided that giving docs everything that they wanted, in exchange for getting AMA support, leverage against Medicare Advantage, etc. was better than using the SGR fix as leverage for fixing compensation reform. You've thankfully come around to understanding that the doc stuff is actually what matters to true reform-- just recognize that the Democrats are very in the wrong policy-wise. SGR is the best leverage Medicare will have to fix physician compensation for the forseeable future, and its being given away as a political favor for the rest of reform. The "cost" is much greater than the $200 billion. There's not another politically viable approach to physician comp reform on the horizon-- probably for a generation.

Rep Paul Ryan is right about the cost matters, even/especially when its paid for in taxes.

Taxes suck money out of the economy.

If I were to tell my kids that I figured out a "fiscally sustainable way" for all of us to go on a luxury cruise to Hawaii, do you think that they would care that I was taking the money out of their college fund (i.e. money that they were going to use to grow their personal economy)?

Do Democrats ever acknowledge that the cost of raising taxes to to slow or reverse economic growth? Its not just free money to be taken at will by our government. There is a consequence to higher taxes.

Ezra would you ever ask an economist about the likely reverse stimulus effect of "mandating" every middle class family spend a large portion of their disposable income on a new comprehensive insurance policy? That is less disposable income for them to spend on other things, isn't it? Isn't the economy driven from the ground up, and with less economic activity won't our economy recede(again)?

FastEddie007 wrote:
"The fact is that Obama & Pelosi will never do that, and they've used the CBO Score as a cynical prop for arguing their bill as a Utopian panacea, the reform to end all reforms."

Uh, no. I defy you to find a single quote from anybody on the Democratic side expressing an opinion that the current bill is anything like their first choice, let alone a "Utopian panacea." It's clearly what they think is achievable at the moment.

This is fantastic. The Republicans have cultivated ignorance about policy for so long, and made so many inflammatory and disingenuous claims, that to address this problem, you simply have to go head to head, point to point.

Such a system, or something approximating it, does it exist on the planet earth. This nation, which I will name in a later comment, provides universal coverage, 66% of the dollars for healthcare expenses come from private sources, only 3% of GDP is spent on health care. Health outcomes are among the best in the world. Satisfaction by both patients and practitioners is very high. Infant mortality rate is actually the lowest in the world. And this system uses many of the same market mechanisms that are a part of Ryan's roadmap. Personal responsibility and payment is one of the core "values" of this system and is a key reason that costs are so low.

"Its a pity you didn't have time to explore what privitizing and voucherizing medicare would do to the benefits, which is to cut them in real terms (health care costs go up faster than the value of the vouchers). I would like to see how many repiglicans are willing to embrace that inconvenient truth."

Do you have some magical way that Medicare costs can be contained without cutting benefits?

I would encourage readers here to google John Goodman Obamacare with Lipstick. I would love to see some comments to that article. Money quote:

"In 2016, ObamaCare will require almost everyone to have insurance that costs an estimated $15,000 for a family (House version). For a $30,000-a-year worker, there are additional limits on out-of-pocket costs. If the employer is providing the insurance, the total tax subsidy from the federal government will be about $2,295. However, if the employee were not getting insurance from the employer, he would qualify for the better insurance (less out-of-pocket exposure) in a new health insurance exchange -- with a federal subsidy that would be $17,105 higher!"

I agree with some of the commenters here - Ezra, you got Ryan in hand. I think for Doc fix, Ezra is able to get some traction.

But real kudos here are to Rep. Paul Ryan. It is totally unheard of a Congress person holding fort with a 'wonk'. Brilliant. Ezra may have got better part of the argument, but what Americans are going to feel better about is at least there are few souls in otherwise a hopeless building called Capitol.

Many, many thanks to Ezra for doing this. In what words can we tell to established Media that - 'this is what we need to read'. (Not some cr*p about Rahm....)

Why not get an HSA and the same money you would have put into a basic savings account save the taxes on it? This way too if you get sick your still covered and you don't need to pay the "token" mandate penalty? Btw you're the perfect example of why we need a stronger mandate and a true understanding of the cost of care. End up in the er with kidneystones for example and you could be looking at thousands in costs

Why not get an HSA and the same money you would have put into a basic savings account save the taxes on it? This way too if you get sick your still covered and you don't need to pay the "token" mandate penalty? Btw you're the perfect example of why we need a stronger mandate and a true understanding of the cost of care. End up in the er with kidneystones for example and you could be looking at thousands in costs

Paul Ryan: "The Patient's Choice Act that I have doesn't repeal the exclusion and put the money in a new government spending program. It takes the money and gives it to the individual."

What the hell? In other words, his bill would raise money by taxing individuals (i.e. taxing the value of their employer-provided health insurance) in order to give that money back to those same individuals. What would be the point of that? It sure doesn't sound very Republican to me.

A very insightful interview. Having watched all 7-plus hours of the health care summit, as well as the Q&A in Baltimore a few weeks ago, not to mention the wall-to-wall C-Span coverage, this was BY FAR the best interview/discussion on the details of the Republican "objections" to health care.

It is striking that you were able to dismantle much of Ryan's objections and catch his sly change of subject. Again, it boils down to Republicans simply not wanting to do anything more strenuous than kick the can down the road.

Ryan thinks he can dazzle you with deft data-juggling. But he's not really juggling, just moving his hands really fast.

Ezra has written extensively on the reason the tax exclusion is inefficient. Go here for a detailed analysis: http://www.theatlantic.com/magazine/archive/2009/09/how-american-health-care-killed-my-father/7617/.

The reason it makes sense to give it back to individuals is because it restores the semblance of a price system and its signaling function which would lower the cost of health care.

I understand the issues, and I agree that the exclusion should be ended. I agreed as well with Paul Ryan when he said earlier in the interview, "That's where we should go to fund health-care reform." But the suggestion that we should take the money, pass it through the government, and then give it back is nonsensical. The price signaling function fades away as soon as you give the money back.

So do we agree that any politician who claims this bill helps with Medicare is blatantly lying?

This bill not only avoids dealing with Medicare cost over-runs, it exacerbates the Medicare debt problem by stealing money from it and reducing benefits---but not to improve Medicare's debt problem....but to create a phony pre-text for belieing that program and a new entitlement program are more fiscally sustainable than they really are.

To say this bill is deficit neutral is as much a lie as saying that buying a new house is deficit neutral---its not. its smoke and mirrors.

How would you distinguish a private insurance company that has its rates set by the government, its payouts set by the government, and its costs set by the government from a purely government entity?

The answer: their stationary won't have the "Obama" logo on it (yet).

"Nationalizing" the un-profitable private insurance companies in a few years from now is really just a formality!

This is a SINGLE-PAYER system from Day 1! The Democrats actually are passing a Single-Payer system, except they've managed to disguise the hugest tax increase EVER on the middle class in the form of a mandated premium payment to a private insurance company(which is just a federally-managed holding company for the federal government).

This isn't even socialized medicine. Its communist medicine! First the profits of insurance companies is removed. Next they will come for the doctors and the scientists who create pharmaceuticals.

I've got to give Jacob Hacker a lot of credit!!! He really pulled off one of the greatest cons on the American people ever!

"But insofar as the double counting goes, the double counting is an issue of how some Democrats are talking about this. And I agree with you. Saying that the money will do two things at once is out of line."

Ezra, then, why do you promote that the HCR would reduce the deficit? When you remove the double counting, which you say is out of line to claim, there is no reduction to the deficit.

The roof and new house analogy doesn't quite work if you're also proposing installing energy efficient appliances in the old home and counting the increased sale value towards the value of the new home.

Thanks for your reply. You say at the end: "The price signaling function fades away as soon as you give the money back."

That statement is just incorrect. If the money is given back to patients in the form of vouchers, that is like having money in your pocket. How you spend that "money" is a signal to the market about what you value. In the aggregate, if many people prefer the same solution, then companies will have to compete on value, quality and price in order to win the business. That signaling function totally disappears in a market where decision making is centralized rather than decentralized. Tim Harford, in his book, The Undercover Economist, does a very nice job of explaining this. He also does a nice job explaining the adverse selection problem in private insurance markets.

Tim was the one who pointed me to Singapore for having one of the most efficient and effective health care systems in the world.